Estimating long-term prices for base metals is central to the financial viability of mining investments, yet prices remain highly volatile and difficult to forecast. This study systematizes the determinants of base metal prices and evaluates their empirical influence using daily and weekly data from the London Metal Exchange (LME) for aluminium, copper, nickel, and zinc between April 2005 and May 2017. In this context, the study aims to identify and evaluate the key economic, financial, and physical drivers of base metal prices, with particular emphasis on distinguishing between short-run predictive factors and long-run equilibrium determinants. After aligning metal prices with candidate explanatory variables, linear associations are quantified through Pearson correlations and alternative functional forms are explored for price modelling, including linear, log-linear, and selected nonlinear transformations. The methodology is complemented with econometric diagnostics. Explanatory variables are grouped into four categories: (i) supply–demand metrics (inventories, production–consumption balances, sales aggregates, and LME position data), (ii) business cycle and income proxies (global GDP growth, China Caixin PMI, the U.S. S&P 500 index, and China steel rebar futures), (iii) investment variables (cross-metal prices and Brent crude), and (iv) monetary indicators (U.S. and the U.S. 10-year yield). Results show that short-run price movements are mainly driven by business cycle indicators and inventory dynamics, while long-run trends reflect structural supply conditions. Monetary variables generate temporary price impulses, and prices tend to lead speculative positioning rather than the reverse.
Petri et al. (Tue,) studied this question.